Behind Google's Antitrust Escape

After early hopes for a sweeping antitrust case against Google Inc., it became clear to the Federal Trade Commission last fall that no such lawsuit was in the offing.

A clinching moment came in November when FTC staff, who had exhaustively investigated the Internet search giant for 18 months, told the five FTC commissioners that they shouldn't bring a broad antitrust case, rebutting the theory that Google abused its dominant market position in Internet search to favor its own products and services at rivals' expense.

Instead, in a series of packed meetings at room 432 of FTC headquarters on Pennsylvania Avenue in Washington, D.C., they recommended pursuing a series of smaller issues. That culminated Thursday in an announcement by the FTC that it wouldn't bring sweeping charges against Google.

The Mountain View, Calif., company agreed to make voluntary and nonbinding changes to some aspects of its search business, in what has been widely hailed as a victory for the Internet behemoth.

People familiar with the FTC's probe said both staff and several commissioners felt that Google engaged in questionable behavior, but they struggled to come up with a convincing theory of how consumers, and not just competitors, were harmed.

Even if some in the commission didn't like what Google was doing, they concluded the tactics weren't necessarily violating antitrust law, people familiar with the process said.

WSJ's Ashby Jones and Simon Constable discuss the FTC's settlement with Google, in which the search giant agreed to allow websites to remove content from search results.

ENLARGE

FTC Chairman Jon Leibowitz, above, received a letter from U.S. Senator Mark Udall encouraging the agency to proceed "cautiously" in its probes of Internet companies.
Andrew Harrer/Bloomberg News

At the same time, Google had also undertaken extensive efforts to set an escape hatch from U.S. antitrust efforts.

The Internet company spent years on lobbying and other efforts to build up goodwill in Washington, becoming the fifth-highest spender on lobbying in 2012, shelling out more than $14 million related to the antitrust probe and other issues, according to the nonpartisan Center for Responsive Politics and lobbying disclosure statements.

Google also dispatched executive chairman Eric Schmidt and other employees to garner support from lawmakers, adding political pressure to the landscape. In November, for instance, staff members of U.S. Senator Mark Udall, a Democrat from Colorado, spoke with Google representatives.

Afterward, Mr. Udall sent a letter to FTC Chairman Jon Leibowitz, encouraging the agency to proceed "cautiously" in its probes of Internet companies, which "have some of the highest consumer satisfaction rates in the country" and have created millions of jobs.

Mr. Udall later spoke by phone with Google's Mr. Schmidt about the letter and other matters, said Mr. Udall's communications director, Mike Saccone.

He added that the senator "has a great working relationship with companies that do business in Colorado...such as Google.

Mr. Udall's letter to Mr. Leibowitz, which was reviewed by The Wall Street Journal and earlier reported by Politico, was one of many such letters that the FTC received from Congress.

ENLARGE

A Google sign at the company's offices.
AP

Some lawmakers publicly expressed concerns that were shared by Google—namely, that too much inside information about the FTC's investigation was being leaked to reporters.

One of them was U.S. Senator John Kerry, a democrat from Massachusetts, who spoke with Mr. Schmidt by phone in November, said a person familiar with the matter.

It is unclear what the men spoke about, but during a December Senate hearing involving nominees to posts at the FTC and other agencies, Mr. Kerry stated that FTC investigations and settlement negotiations had become "poorly kept secrets" and suggested that the agency's deliberations were being leaked for "strategic advantage."

More on Google

People close to the FTC's probe said the agency decided not to pursue charges against Google because they couldn't make a case, not because they were being pressured politically.

The FTC's decision also shows how anti-Google lobbying from rivals like Microsoft Corp.MSFT-0.38% had little effect.

Microsoft had pressed regulators to bring an antitrust case against Google.

The Redmond, Wash., software company had 73 registered lobbyists on its payroll in 2012 to work with Congress, the FTC and other government agencies, according to the Center for Responsive Politics.

Microsoft has also helped bankroll groups like FairSearch.org, a coalition of technology companies opposed to Google.

"We engage lobbyists in D.C. to help on many diverse topics, as reflected in our lobbying disclosures," a Microsoft spokesman said.

In a sign no Google effort was too small to go unnoticed by Microsoft, John Sampson, a director of Microsoft's federal politics operations, last year urged at least one member of Congress from Washington state not to support a Google event in Seattle last year called "Get Your Business Online" that catered to small businesses.

Google spent millions of dollars on Get Your Business Online, a nationwide campaign that included multiday workshops in states such as Iowa and Texas in which Google helped local businesses set up websites and an online business listing tied to its search engine, free of charge.

In an email to a congressional office in March 2012, Mr. Sampson said such events were partly aimed at soliciting small businesses to support Google.

"Although these programs have an air of goodness," he wrote in the email reviewed by The Wall Street Journal, "Google is in fact using this program to develop a grass-tops network" of small businesses they can "activate to their defense" if the FTC tries to bring a case.

Some Washington lobbyists, including those who have done work for Google, said that the Get Your Business Online effort has perhaps had more impact on federal lawmakers than any lobbying done on Capitol Hill.

Within the FTC, Mr. Leibowitz over the fall told several parties that the Web-search case against Google would be hard to win, according to the people familiar with the probe.

The agency increasingly turned its attention to other issues, including whether Google misused certain key patents it acquired when it bought handset maker Motorola Mobility. Google settled that charge Thursday. The company gave advertisers more flexibility to use rival search-engine ad systems and said it would allow rivals to opt out of having their content appear on some Google websites.

The FTC ultimately ended up badly splintered on the probe's conclusion, particularly on the agency's acceptance of Google's voluntary changes.

Mr. Leibowitz defended the commitments the FTC extracted from Google, saying they would benefit American consumers in a timely way. "It is good for consumers, it is good for competition, it is good for innovation, and it is the right thing to do," he said.

But one commissioner, J. Thomas Rosch, who in November had offered up a new, alternate theory on how the agency could proceed with a broad case against Google that found no support among the other four commissioners, in a dissent expressed worry that the FTC had set a bad precedent for future negotiations with other companies.

Since Google wasn't held to a binding legal commitment in its search business, "going forward, parties under investigation are likely to demand similar treatment," Mr. Rosch said. "Failure to do so would imply that Google has received preferential treatment in this investigation."

Meanwhile, Google's rivals continue to hold out hope that regulators elsewhere—such as in Europe and among U.S. state attorneys general—will trip up the Web giant.

A spokesman for the European Commission's antitrust watchdog told several news outlets on Friday it had "taken note" of the FTC decision but it had no "direct implications for our investigation."

The Texas state attorney general's office said its parallel probe of Google's search-engine practices, which includes other states such as Ohio, would continue. Texas, which declined further comment, has battled with Google to obtain certain company documents that Google said were privileged and shouldn't be part of the probe.

"I would call [the FTC decision] maybe the conclusion of one battle, and the war rages on," said Patrick Lynch, a former Rhode Island attorney general who says he has lobbied officials in virtually every state on behalf of FairSearch, the group pushing for antitrust action against Google.

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